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Virgin: no guarantee on Tiger

Matt O'Sullivan

John Borghetti says no airline would give a capacity commitment for five years. Photo: Glenn Hunt

VIRGIN Australia insists it cannot give an ''ironclad guarantee'' that it will triple the size of Tiger's Australian fleet within the next five years because of the volatile nature of the industry.

The competition regulator has indicated that a condition of its approving Virgin's bid for a controlling stake in Tiger will be it living up to plans to boost its fleet from 11 to up to 35 planes by 2018.

But speaking after Virgin posted a 56 per cent drop in first-half profits, chief executive John Borghetti said it would be irresponsible to give a firm commitment to boosting Tiger's fleet to 35 because it operated in a ''very volatile industry''.

''You can't give an ironclad guarantee on something like that because you just don't know what's around the corner,'' he said, citing the importance of the words ''up to'' when it announced plans for Tiger. ''No airline in the world would give a capacity commitment for five years.''

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The airline's bid for Tiger, and approved takeover of regional airline Skywest, threatens to effectively return Australia's aviation market to a duopoly.

Virgin and Tiger's Singaporean parent appear to be replying on the so-called ''failing business'' argument to win approval from the regulator, although their case has not been helped by the budget airline recently adding new routes to its Australian network.

Tiger's Singaporean management has also intimated it will pull its airline out of Australia if the regulator does not approve the deal.

Virgin's refusal to make a firm pledge came as its net profit fell by 56 per cent to $23 million in the first half due to a ''capacity flood'' in the domestic market and the impact of the carbon tax. The result was lower than analysts had expected, causing an almost 6 per cent slide in Virgin's share price.

Pre-tax earnings from its core domestic business fell by 44 per cent to $49 million in the first half, as it faced the biggest increase in capacity since the launch of Jetstar nine years ago. But analysts said Virgin's domestic earnings decline was not as steep as Qantas.

''Clearly they have taken share from Qantas in the corporate market. The domestic market is no longer the really lucrative market it used to be,'' said CBA Equities analyst Matt Crowe.

''They are putting a lot of capacity in the market, and both companies' earnings are being affected by this yield weakness. The only ones winning are customers.''

Mr Borghetti said what had been clear over the past eight months ''is that we have withstood the most strong competitive response that I have seen in this market for a very long time''.

''You would have to believe that we are being hurt less than them [at Qantas],'' he said.

Virgin has not given specific earnings guidance for the financial year because of ''uncertainty in economic conditions and the competitive environment''. It has not made a second-half profit for five years.